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The Zest

Buying a Business or a Brand? Make Sure the Trademark Comes With It

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"I'm buying a small business, and the name is half of what I'm paying for. How do I make sure I actually get it?" Through a written trademark assignment that includes the goodwill of the business, signed by whoever actually owns the mark, and recorded with the USPTO after closing. Before any of that, you check that the seller owns what they're selling.

Here's what that looks like.

The name only moves with the goodwill

You can't buy a brand name on its own. The Trademark Act says a mark is assignable with the goodwill of the business it's used in, or with the part of the goodwill connected with the mark. A transfer of the bare name, without the business it stands for, is called an assignment in gross, and courts treat it as invalid.

The Fifth Circuit's Sugar Busters decision shows what that means. A registration for retail store services for people with diabetes was eventually assigned to a company that used the name for a diet book. The court held that the goodwill hadn't really transferred: the buyer had no plans to run a store, and its book wasn't substantially similar to a store selling diabetic supplies. The assignment was invalid, and the buyer couldn't rely on the registration in its infringement case.

The court also said tangible assets aren't required. You don't need to buy the inventory or the customer list for the goodwill to transfer. What matters is that the goods or services sold under the name after the sale are the same as, or substantially similar to, what it stood for before. So the assignment should say in writing that it includes the goodwill, and your plans for the brand should match what the brand actually is.

Intent-to-use applications have their own rule

If the brand you're buying is still an intent-to-use application, slow down. Under the statute, it can't be assigned before the owner files an amendment to allege use or a statement of use, except to a successor to the applicant's business, or the portion of it the mark relates to, if that business is ongoing and existing. The USPTO's examination manual says an assignment that breaks this rule voids the application, and any registration that results has to be cancelled.

In practice, buying the whole operating business may fit the exception. Buying a name that hasn't been used yet, with no business attached, doesn't.

Record the assignment with the USPTO

A trademark assignment has to be in writing and properly signed. After closing, it should be recorded with the USPTO's Assignment Recordation Branch, usually online through the USPTO's Assignment Center. The government fee is $40 for the first mark in a document and $25 for each additional mark in the same document.

Recording matters for two reasons. First, protection against a second sale. Under the statute, an unrecorded assignment is void against a later buyer who pays for the mark without notice of yours, unless yours is recorded within three months or before that later purchase. Second, control of the file. To act on the application or registration, like responding to an office action or filing a maintenance document, the new owner has to establish ownership, and the documents have to show a clear chain of title from the original owner.

Two caveats. Recording is a ministerial act, not a ruling that the assignment is valid. And recording doesn't always update the owner shown on the record automatically; when it doesn't, a separate filing is needed.

Due diligence before you sign

Who owns it. Is the owner of record the company selling to you, the founder personally, or an older entity? An LLC and its trademark are separate things, and the right party has to sign the assignment.

Chain of title. Every transfer from the original applicant to the seller should be documented and recorded. Gaps get fixed before closing, not after.

Status and deadlines. Is the registration live? When is the next maintenance filing due? Missed maintenance filings cancel registrations, and a deadline that falls right after closing is now yours.

Actual use. Is the mark in use for everything the registration lists? Under the statute, three straight years without use is, on its own, evidence that the mark was abandoned.

Disputes and agreements. Ask about pending oppositions, cancellations, demand letters and lawsuits. Ask whether the seller has licensed the name to anyone or signed a coexistence agreement. Those can come with the mark.

Everything else with the name on it. Product names, slogans and logos that were never registered still carry rights from use, so list them in the assignment too. The same goes for domain names, social handles and marketplace brand accounts. And check who owns the logo artwork: if a contractor designed it, the seller may not own the copyright.

Buying part of a brand

Sometimes you're buying one product line, not the whole company. A mark can be assigned with the goodwill tied to only some of the goods or services. What a seller can't do is use an assignment to split a registration up by territory. If the deal is a partial one, the assignment should spell out exactly which goods or services, and which goodwill, are moving.

If you're buying a brand and want the trademark side checked before you close, you can see how the work and packages are priced on the services page, and the FAQs page answers most of what comes up before a first call.

Book a free 15-minute discovery call with the attorney (opens in a new tab)

(No legal advice is given on the discovery call. It's a chance to tell me what you're building and hear how the process works.)

Sources

This article is general information, not legal advice. Reading it does not create an attorney-client relationship.

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